2023 (8) TMI 1183 - AT - Income Tax

Revision u/s 263 - Scope and powers of applicability of Section 263 - Deduction u/s 80P(2) - HELD THAT - As the order passed by AO is not erroneous and prejudicial to the interests of the Revenue for the reason that firstly, AO had examined this issue during the course of assessment proceedings and secondly, various judicial precedents as highlighted above have also adjudicated on this issue in favour of the assessee including the jurisdictional Gujarat High Court in STATE BANK OF INDIA (SBI) 2016 (7) TMI 516 - GUJARAT HIGH COURT and M/S. SURENDRANAGAR DISTRICT CO-OP. MILK PRODUCERS UNION LTD. 2019 (9) TMI 978 - ITAT RAJKOT as held that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction u/s 80P(2)(d). We also need to be mindful of the fact that in 263 proceedings, the scope of proceedings is not as vast as in the case of original assessment proceedings and would the assessment order can be set-aside only within the framework provided u/s 263 of the Act. Hon ble Supreme Court in the case of Shreeji Prints (P.) Ltd. 2021 (9) TMI 108 - SUPREME COURT outlining the scope and powers of applicability of Section 263 we are of the considered view that Ld. PCIT erred in facts and in law in setting-aside the assessment order as being erroneous and prejudicial to the interest of the Revenue in the instant case. Decided in favour of assessee.

Summary

Issues:
The judgment involves the eligibility of the assessee for deduction under Section 80P(2) of the Income-tax Act, 1961 in relation to interest income earned from fixed deposits held with Co-operative Bank for Assessment Year 2018-19.

Eligibility for Deduction under Section 80P(2):
The Principal Commissioner of Income Tax (PCIT) initiated proceedings under Section 263 on the grounds that the assessee incorrectly claimed deduction under Section 80P(2) of the Act for interest income earned from fixed deposits with Co-operative Banks. The PCIT set aside the assessment order, contending that such income taxed as "income from other sources" does not entitle the society to the deduction under Section 80P(2) as claimed. The PCIT relied on the decision of Totgars Cooperative Society 188 taxman 282 to support this view.

Assessee's Arguments and Judicial Precedents:
The assessee appealed against the PCIT's order, arguing that the Assessing Officer had thoroughly examined the deduction issue during assessment proceedings. The assessee cited various judicial precedents, including Rajkot ITAT and Gujarat High Court decisions, supporting the eligibility of co-operative societies for deduction under Section 80P(2) for interest income from deposits with Co-operative Banks. The assessee contended that the Assessing Officer's decision was legally plausible based on the submissions made during assessment.

Judicial Analysis and Decision:
Upon review, the ITAT found that the Assessing Officer had indeed inquired into the deduction eligibility under Section 80P(2) and considered the submissions provided by the assessee. The ITAT referenced several judicial precedents, including decisions by the Gujarat High Court and ITAT, supporting the assessee's claim for deduction. The ITAT highlighted that the scope of Section 263 proceedings is limited and cannot be used to challenge every assessment order without substantial legal grounds. Citing the Supreme Court's observations in Shreeji Prints (P.) Ltd., the ITAT concluded that the PCIT erred in setting aside the assessment order as erroneous and prejudicial to the Revenue's interest.

Conclusion:
The ITAT allowed the appeal of the assessee, emphasizing that the assessment order was not erroneous based on the legal analysis and precedents presented. The judgment was pronounced in open court on 23/08/2023.